Main Topic: U.S. inflation and the Federal Reserve's efforts to control it.
Key Points:
1. U.S. inflation has declined for 12 straight months, but consumer prices increased 3% year-on-year in June.
2. The Federal Reserve aims to reduce inflation to about 2% and plans to raise its key federal funds rate to over 5%.
3. The Fed is concerned about high inflation due to a strong labor market, rising wages, and increased consumer spending, and aims to slow the job market to control inflation.
Main Topic: The U.S. Federal Reserve's need to raise interest rates further to bring down inflation.
Key Points:
1. Governor Michelle Bowman supports the Fed's quarter-point increase in interest rates last month due to high inflation, strong consumer spending, a rebound in the housing market, and a tight labor market.
2. Bowman expects additional rate increases to reach the Fed's 2 percent inflation target.
3. Monetary policy is not predetermined, and future decisions will be data-driven. Bowman will consider consistent evidence of inflation decline, signs of slowing consumer spending, and loosening labor market conditions.
### Summary
Former Toys "R" Us CEO Gerald Storch warned that the economy is likely to face a difficult holiday season due to persistent inflation. Other economic stresses such as rising interest rates, credit card debt, and student loans are also contributing to consumer difficulties.
### Facts
- Inflation remains sticky despite the Inflation Reduction Act that was passed a year ago.
- Sales of physical products have been declining for 11 consecutive months when adjusted for inflation.
- The July consumer price index (CPI) rose 0.2%, with prices climbing 3.2% from the same time last year.
- Pulte Capital CEO Bill Pulte suggests that the economy is in a period of stagflation with low growth and high inflation.
- Shelter costs, accounting for 40% of the core inflation increase, rose 0.4% for the month and are up 7.7% over the past year.
- Americans are spending $709 more per month on everyday goods and services compared to two years ago.
- Consumers are shifting towards value retailers in response to inflation.
- President Biden acknowledges that the Inflation Reduction Act was not solely aimed at reducing inflation but rather focused on generating economic growth.
### Summary
Reserve Bank Assistant Governor Karen Silk says the Official Cash Rate is working despite sticky core inflation and record high employment.
### Facts
- đ Headline inflation has been falling for the past year, but non-tradable inflation has not declined significantly.
- đ Core inflation has been stuck at 5.8% for the past three quarters.
- đ The average mortgage rate is steadily climbing towards 6%.
- đ There are signs that the OCR is working to restore balance in the economy, such as falling forward orders for business and decreasing durable spending.
- đ° Demand for residential mortgages has fallen 32.9% in the six months ended March.
- đ The Reserve Bank expects non-tradable inflation to be lower in the coming quarter on an annual basis, but the quarterly rate may still be high.
- â˝ Higher petrol prices could lead to tradable inflation having its hottest quarter in two decades.
- đŻ The OCR mostly targets domestic, or non-tradable, inflation.
- đŻ The Reserve Bank's forecasts have been criticized for missing its inflation forecast, but Silk defends the forecasts, stating that they are as accurate as any other local economic institution.
- đ The Reserve Bank has forecasted that headline inflation will be back in the target range one year from now.
- đ¤ There is doubt about whether inflation will drop below 3% in September 2024, as predicted.
- đ˛ Another rate hike may be required to achieve the Reserve Bank's inflation target.
- đą Some economists believe that the economic downturn could be worse than expected, making a rate hike unlikely in the near future.
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The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
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The podcast explores how the official U.S. government inflation report and the monthly unemployment and jobs numbers are calculated and their impact on economic decision-making.
The Federal Reserve has expressed concerns about persistent inflation, potential losses in the US office market, and funding pressures on certain banks in its recent report.
